What is the EITC program? Not to be confused with the Federal Earned Income Tax Credit, the Pennsylvania Educational Improvement Tax Credit program is focused on incentivizing businesses to donate to educational scholarships and improvements in the state in return for tax credits.
Many businesses fail to take advantage of this incredible program each year. Your company may be eligible to benefit from the Pennsylvania Department of Community and Economic Development (DCED) Educational Improvement Tax Credit (EITC) program. Find out EITC program details now!
What is the EITC Program?
This bi-partisan act passed the Pennsylvania legislature in 2001. The program offers tax credits to businesses who contribute to scholarship organizations, educational improvement organizations, and/or pre-kindergarten scholarship organizations. The goal is to encourage PA businesses to get involved in education and invest in our children’s future.
An eligible business can receive a 75% tax credit for donations made to the non-profit scholarship or education improvement organizations. That percentage goes up to 90% if the donations are committed for two consecutive years. The maximum tax credit is $750,000 annually.
For pre-kindergarten donations, the tax credit is 100% up to $10,000 and then goes down to 90% for the remaining contributions. Businesses can receive tax credits up to $200,000 annually for their pre-kindergarten contributions.
Many businesses don’t realize how easy it is to qualify for the EITC program. You simply need to:
- Be authorized to do business in Pennsylvania
- Be subject to one or more these taxes
- Personal income tax
- Capital stock/Foreign franchise tax
- Corporate net income tax
- Bank shares tax
- Title insurance and trust company shares tax
- Insurance premium tax, excluding surplus, unauthorized, or marine lines
- Mutual thrift tax
- Malt beverage tax
- Retaliatory fees
- Apply online for the program each year
This means that no matter your entity type, S-corporations, Partnerships, LLCs, and C-corporations are eligible to take advantage of Education Improvement Tax Credits.
Qualifying Educational Organizations
The contributions your business makes are only approved for tax credits if they go to a qualifying educational organization. There are three types of organizations approved for donations.
Scholarship organizations (SOs)
These organizations provide scholarships to children to attend private schools of their choosing. Get the full list of approved SOs here.
Educational improvement organizations (EIOs)
These organizations are dedicated to funding and implementing innovative programs within public school systems. Get the full list of approved EIOs here.
Pre-kindergarten scholarship organizations (PKSOs)
These organizations provide scholarships to children so that their family can choose the best pre-kindergarten school for their child. Get the full list of approved PKSOs here.
Important EITC Program Deadlines
Businesses who have finished their current 2-year commitment and would like to renew for another two years, and businesses entering year two of their commitment must apply online by May 15th each year.
Businesses who are applying for the first time, and businesses who want to submit an additional application in addition to their existing 2-year commitment must apply online by July 2nd each year.
In order to actually receive the tax credits, businesses that have applied and been accepted into the program must follow these terms. Once they receive a letter notifying them that they were approved for the program, they must prove to the DCED within 90 days that a contribution was made within 60 days of the notification letter.
In most situations, the credits must be used within the same tax year as the contribution. There are a few exceptions for pass-through entities that a qualified CPA can walk you through.
How to Apply
Eligible businesses can now apply online for the EITC program. The DCED created an in-depth guide for the application process that you can view here. Or you can work with your CPA to complete the application. All applications are evaluated on a first-come, first-serve basis until the maximum funding limit is reached. The funding for each program is as follows:
- SOs – $75 million
- EIOs – $37.5 million
- PKSOs – $12.5 million
What are you waiting for? Most PA businesses can take advantage of this program, and the DCED has made the process simple and easy to follow. Consider contributing to PA’s education this year and reap the tax benefits!